Will the Pandemic Create a New Nation of Savers?

Britain used to be referred to as a nation of shop-keepers, but in recent times it has become a nation of shoppers. 

Last year, the Office of National Statistics announced that households had consistently spent more than they received for 9 consecutive quarters in a row. Savings in the UK are lower than any other OECD country and since the 2016 EU referendum, every large sector of the economy (households, companies and the government) has been in deficit at the same time: a situation last recorded in the late 1980's. It is estimated that around a third of Britons have less than £1000 savings to fall back on and over 60% of 25 to 34-year-olds have no savings at all. Some pretty stark statistics.

This can be attributed to a wide variety of factors. A key influence is that low interest rates have meant exceptionally cheap credit and poor savings rates, leading people to ‘live for the moment’ and adopt a ‘buy now, pay later’ mentality. It has also meant that those with the ability to save have seen cash savings depreciate in real terms and have been pushed to invest in the stockmarket to seek returns, rather than hold cash. Social media pressures – Facebook, Instagram (and probably Linkedin) - has also increased consumerism and led to a modern day version of ‘keeping up with the Joneses’, driving people to stretch themselves, take the biggest possible mortgage they can secure, and buy cars and holidays they can’t really afford.

The thought of putting money aside into a ‘rainy day fund’ has not really been at the forefront of people’s minds. And why would it - business has been booming over the last few years, leading us all into a false sense of security. If we have confidence in our own abilities, career trajectories, and in the firms we work for, we have had confidence that the money will just keep coming in.

What this Pandemic has shown is that no industry, job or livelihood is 100% secure. No one could have predicted this, what a severe and widespread, global impact it would have and no one knows yet what the full impact will be from a personal economic perspective. It will surely make us think differently about how fragile our individual situations are and amplify the ‘what if’ aspect of personal financial planning going forward.

The traditional advice of having 3 months expenditure in cash will surely be revised as this experience will show that is not enough. Fine if you happen to lose your job in a buoyant market, not so much in a situation like this.

Perhaps people will stop living beyond their means and return to the approach many of our parents/grandparents took (or at least what they tell us they took!), of saving up to buy what you wanted and only buying what you could really afford.

The lockdown has shown us how much we fritter on rubbish that we don’t really need and the pandemic has shown us what is really important in life – not accumulating material possessions and trinkets, but a comfortable, secure existence and, most importantly, the health and well-being of ourselves and those around us.

If there is one thing this Pandemic has shown us, it is that nothing is certain. It will undoubtedly make us all think more about basic personal financial planning.

I would be interested to hear from my adviser connections as to how they feel the Covid-19 Pandemic will impact the attitude of clients, in the medium to long term, and how it may alter the advice you give. Do you expect a much more cautious approach by clients in the future, will you be revising your recommendations as to the amount of cash clients should hold, and how will this affect the bottom line for advisory firms?